The Guardian Life Small Business Research Institute released a new report that identifies six steps small business owners can take to improve their revenues in the year ahead. These steps – planning for contingencies, seeking counsel from professionals, using borrowed funds strategically, developing managerial skills, not obsessing about the company, and having a clear vision of the business – all characterize small business owners who had an increase in revenues in 2011 over the prior two years.
The Institute’s observations are based on The 2011 Guardian Life Index: What Matters Most to America’s Small Business Owners, which surveyed nearly 1,100 small business owners in nine size categories, including sole proprietors, 2-9 employees, 10-24 employees, 25-49 employees, 50-99 employees, 100-499 employees, 500+ employees and more than 5,000 employees. Comparisons were then made between those small business owners who projected higher revenues in 2011 versus the prior two years, and those who projected ‘about the same’ or ‘declining’ 2011 revenues versus the prior two years.
“Growing revenues during the recession was no small feat,” said John Krubski, research advisor to The Guardian Life Small Business Research Institute. “However, insights from The Institute’s most recent Index provide a fresh understanding of how higher-growth small business owners achieved their success.”
The following six steps are strongly associated with higher-growth small business owners – those who successfully weathered the challenging economic environment of the past several years:
- Be Prepared for Contingencies. Small business owners who built their revenues over the past two years were far more likely to engage in contingency planning by pre-establishing credit lines and retaining cash reserves, rather than just reacting to business difficulties as they emerged. For example, 47 percent of higher-growth companies in the sample had cash reserves that enabled them to weather tough economic times, whereas only 35 percent of companies that just maintained their revenues were able to rely on such financial resources.
- Seek Advice from Professionals. Owners of higher-growth small businesses reported that they relied on advice from professionals and informal business support groups at consistently higher rates than did owners of companies that had revenue declines. The respective percentages for higher-growth small business owners versus revenue-declining business owners were as follows: accountants (70 percent vs. 62 percent), financial advisors (68 percent vs. 51 percent) and informal business support groups (61 percent vs. 45 percent).
- Use Borrowed Funds Strategically. Some 58 percent of higher-growth small business owners reported that investing borrowed funds in research and development yielded the best return, versus just 38 percent of revenue-flat companies and 16 percent of revenue-declining businesses. Moreover, borrowing to open new offices, build production facilities or add new capabilities / staff was more likely to correlate with a drop rather than an increase in sales.
- Sharpen Managerial Skills. Developing business management skills and being better at strategic planning and money management consistently correlated with increased revenues. The most compelling area of professional development was an improved understanding of how to hire the right people. Sixty-three percent of higher-growth owners said this skill was important, whereas only 53 percent of revenue-declining businesses cited it as vital.
- Avoid Obsessing about the Business. Small business owners who increased revenues during the recent economic downturn tended not to be consumed by the companies they owned and ran. In fact, 75 percent of higher-growth small business owners said their businesses made it possible for them to have more satisfying experiences with their families, compared with 64 percent of revenue-declining company owners.
- Have a Clear Vision. Having a clear vision for the business was strongly associated with higher revenues. For example, 58 percent of higher-growth companies had a clear vision of their businesses, whereas only 39 percent of revenue-declining businesses had this farsighted view.
“This research demonstrates the critical importance of strong management, financial and interpersonal skills as tools to driving business growth,” said Patricia G. Greene, Ph.D., MBA, special academic advisor to The Institute and the Paul T. Babson Chair in Entrepreneurial Studies at Babson College. “The observations and practical steps revealed by The Institute’s research can help guide small business owners looking to grow their business in 2012 and beyond.”
The Guardian Life Small Business Research Institute is a resource devoted to better understanding America’s small business owners. It combines research the company commissions with the expertise of people within the Guardian Life family who have deep experience in the small business community, to yield deeper knowledge, insights and wisdom about today’s small business trends. In 2011, The Institute was named one of North America’s top small business influencers in the Small Business Influencer Awards for making a meaningful and lasting impact on the small business market.
For more information about The Guardian Life Small Business Research Institute, please visit: www.smallbizdom.com.